8/21/2023

LW2602A/LW5602A Law of Contract I (Lecture 1)

Formation
Professor Alexander Loke
School of Law
City University of Hong Kong

August 2023

Books
Texts:
McKendrick, Contract Law, 15th ed (Palgrave Macmillan.
2023) (“MT”)

Casebook:
McKendrick, Contract Law: Text, Cases and Materials,
10th ed (Oxford University Press. 2022)

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Perspectives
1. Judgment
 Discerning certainties vs uncertainties
 Shaping the application of the rules
2. Working with malleable rules
3. Mastery of the material

Overview
Formation
Q: Has a legally
enforceable contract
been formed? Third
Parties

Content
Q: What are the parties
obliged to do? Duress/Undue
Misrepresentation
influence
Excuses

Frustration Breach
Mistake Illegality
Remedies
Q: How does the law
respond to a failure to
perform?

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Elements for the formation of an

enforceable contract
1. Offer and acceptance
2. Consideration
3. Intention to enter into legal relations
4. Formalities

Determining Agreement
The objective test vs. the subjective test

Old oats

Seller
Buyer

(new oats)

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Determining Agreement
The objective test vs. the subjective test
Smith v Hughes (1871)
“If, whatever a man’s real intention may be, he so
conducts himself that a reasonable man would believe
that he was assenting to the terms proposed by the
other party, and that other party upon that belief
enters into the contract with him, the man thus
conducting himself would be equally bound as if he had
intended to agree to the other party’s terms.”

Determining Agreement

The objective test vs. the subjective test

RTS Flexible Systems Ltd v Molkerei Alois Midler GmbH
& Co (2010)
“Whether there is a binding contract between the
parties and, if so, upon what terms depends upon what
they have agreed. It depends not upon their subjective
state of mind, but upon a consideration of what was
communicated between them by words or conduct,
and whether that leads objectively to a conclusion that
they intended to create legal relations and had agreed
upon all the terms which they regarded or the law
requires as essential for the formation of legally binding
relations.” (at [45])

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The objective test

Centrovincial Estates plc v Merchant Investors Assurance Co
(1983) I mean
£126,000 Yes

£68,320 p.a.
Lessor Lessee
(Plf) (Def)
Premises

6/1982. Invite agm – current rental @ £65,000

Plf commenced action for declaration that no contract had

been entered into.
Summary judgment sought
Issue: whether Def had an arguable
defence that a contract existed.

The objective test

Centrovincial Estates plc v Merchant Investors Assurance Co
(1983)

“… it is contrary to the well established

principles of contract law to suggest that the
offeror under a bilateral contract can
withdraw an unambiguous offer, after it has
been accepted in the manner contemplated
by the offer, merely because he has made a
mistake which the offeree neither knew nor
could reasonably have known when he
accepted it.” per Slade LJ

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Objective test as applied to conduct

Shanghai Tongji Science & Technology Industrial
Co Ltd v Casil Clearing (2004)
1. A contract may be inferred from the objective conduct of
parties
2. Not be lightly inferred. The conduct must unequivocally refer
to the contract. Objective test is met only if the parties’
conduct was consistent with there being an implied contract,
and inconsistent with there being no such contract.
3. Objective test not to be applied when one knows that the
other hand no intention of contracting.

What is the difference between:

• Bilateral contract
• Unilateral contract

Why do these concepts matter?

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Carlill v Carbolic Smokeball (1893)

“£100 will be paid by the Carbolic Smoke
Ball Company to any person who contracts
the increasing epidemic of influenza, colds,
or any disease caused by taking cold, after
having used the ball three times daily for
two weeks according to the printed
directions supplied with each ball…”
Defence: the plaintiff did not inform us she
intended to take up the offer.

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The residual relevance of

subjective intentions
Hartog v Colin and Shields (1939)
Subject matter: 3000 pieces Argentinian hare
skins
Quote: 10d per pound
Intended: 10d per piece
Buyer brings action for non‐delivery
Issue: whether there was a contract?

The residual relevance of subjective intentions

Chwee Kin Keong v Digilandmall.com Pte Ltd (2004)

HP printers
Usual retail price SGD 3,854
Priced at SGD 66
Issue: whether there was a contract?

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The residual relevance of subjective intentions

Smith v Hughes (1871)

Sale by sample (new oats)

Buyer thinks: “old oats”
Issue: whether there was a contract?
Difference between:
(a) Plf believed that Def thought he was
buying old oats;
(b) Plf believed that Def thought he was
buying oats which Plf had promised were
old. Def mistaken as to
nature of Plf’s promise

Linkage with doctrine of rectification

Kowloon Development Finance v Pendex

Industries (2013, CFA)
• Rectification for common mistake (the document
does not reflect what the parties have agreed)
• Rectification for unilateral mistake (rectification to
give effect to mistaken understanding which is
known to the counterparty.)

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Fault: Mistake induced by non‐mistaken party

Scriven Bros v Hindley (1913)
Sale by auction
• Hemp ($$) >> Tow ($)
• Lots available for inspection
• Auctioneer labelled the parcel in a misleading manner,
labelling all lots as ‘S.L.’
• S.L. 63‐67 Hemp vs SL 68‐79 Tow
• Buyer examined goods examined in SL 63‐67 and
successfully bid for goods in SL 68‐79.
Issue: whether there was a contract?
“Such a contract cannot arise when the person seeking to enforce it
has by his own negligence or that by whom he is responsible caused,
or contributed to cause, the mistake.” per Lawrence J.

Elements for the formation of an

enforceable contract
1. Offer and acceptance
2. Consideration
3. Intention to enter into legal relations
4. Formalities

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Definition of “offer”

“An offer is an expression of willingness

to contract on specified terms, made
with the intention that it is to become
binding as soon as it is accepted by the
person to whom it is addressed.”
‐ Edwin Peel, (Treitel) The Law of Contract
(15th ed, 2020) at p. 10.

Compare with “invitation to treat”

“[An] invitation to treat: he does not
make an offer but invites the other
party to do so… a statement is not an
offer if it in terms negatives the maker’s
intention to be bound on
acceptance...”
‐ Edwin Peel, (Treitel’s) Law of Contract
(15th ed, 2020) at p. 12.
Intention…

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Why identifying the point of offer is impt.

Is the performance of the obligation due?
Gibson v Manchester City Council (1978)
Land sale
?
City
Gibson
Council

• “We may be
How you prepared to sell at
may £x.” Application
purchase • If you would like to Form
the council make a formal Formal ……………..
house application, Application Form ……………..
complete the …………….. ……………..
sale
enclosed (formal) ……………..
application form. (completed)
brochure …………….. PS Let me know
(completed) the price

Contours of liability

Liability No liability

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Cf. Lefkowitz v Great Minneapolis Surplus Stores

86 NW 2d 689 (1957) Supreme Court of Minnesota

Advertisement in Minneapolis newspaper

“Saturday 9am … 1 Black Lapin Stole …worth $139.50 … $1.00;
First come first served.”

Murphy J:
“The authorities emphasize that, where the offer is clear definite and
explicit, and leaves nothing open for negotiation, it constitutes an offer,
acceptance of which will complete the contract… Whether in any
individual instance a newspaper advertisement is an offer than an
invitation to make an offer depends on the legal intention of the parties
and the surrounding circumstances…”

Partridge v Crittenden (1968)

(Advertisement)
Bramble finch cocks and hens Does this constitute an
for sale
‘offering for sale’ of live
birds …
… and hence contrary to the
Protection of Birds Act 1954?

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Tenders
Harvela Investments v Royal Trust Co of Canada
(1986)
Sale of shares by sealed competitive tender
Fixed bid vs referential bid

$2,100,000 or
$101,000 in
$2,175,000
excess of the
highest offer

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Tenders
Blackpool and Flyde Aero Club Ltd [1990] 1 WLR 1195
Local authority invited tenders for a concession
to operate pleasure flight from Blackpool
airport.
“The Council does not bind themselves to
accept all or any part of the tender. No tender
which is received after the last date and time
specified shall be admitted for consideration.”

City University of Hong Kong v Blue Cross

(2001) 1 HKC 463 (CFI)

Tender to provide insurance coverage

Underquoted for 7/1993 (3 years)
Plaintiff

CityU HK Def

Blue Cross
Learning points:
1. Ordinary position changed by collateral contract analysis
2. What are the terms in the collateral contract?
3. Clause 8 (express term): “Should examination of a Tender reveal
errors of such magnitude as in the opinion of [CityU] would involve
the [Def’s] in serious loss then the nature and amount of the errors
will be communicated to the Tenderer and it will be asked to confirm
in writing that it is prepared to abide by its Tender.”
4. Terms known to be mistaken: p. 475F-476B.

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Definition of “acceptance”

“An acceptance is a final and

unqualified expression of assent to the
terms of an offer.”
‐ Edwin Peel, (Treitel) The Law of Contract
(15th ed, 2020) at p. 18.

Parties may prescribe a method for acceptance

Issue: is the prescribed method mandatory, or merely an indication of how
acceptance is usually communicated?

Manchester Diocesan Council for Education v Commercial and

General Investment (1969)
Invitation for tender to bid for land

Vendor
(Plf) Bidder
(Def)

Plf’s surveyor (to Def’s surveyor):

1 Sep “I will recommend that V
accept your bid” Plf’s solicitor (to Def’s solicitor):
15 Sep “V has accepted your bid – 23 Dec “Govt approval obtained –
govt approval currently sought.” contract binding”
7 Jan Formal notification of
acceptance

Issue: Whether a contract was concluded on 15 Sep or 7 Jan?

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Manchester Diocesan Council for Education v Commercial and General Investment

(1969)

freedom of contract
Clause 4: “The person whose tender is accepted shall be the
purchaser and shall be informed of the acceptance of the tender
by letter sent to him by post addressed to the address given in the
tender.”

• “It may be that an offeror, who by the terms

of his offer insists upon acceptance in a
particular manner, is entitled to insist that he
is not bound unless acceptance is effected or
communicated in that precise way …” per
party of autonomy
Buckley J
Was there such a term?

interpretation: does the contract auctually states

1. freedom of contract
2. have you excerise the freedom of contract

Hyde v Wrench (1840)

What if the offeree makes a counteroffer?

Offer to buy
Offer to sell land for £950
land for £1000

AB CD

What rule is represented by Hyde v Wrench?

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What if the offeree adds to or varies the offer?

Stevenson, Jaques &Co v. McLean [1880] 5 QBD 346
Sell for 40s.
Please wire whether
Net cash, open
you would accept forty
till Monday
for delivery over two
months, or if not
longest limit you would
give.

Seller
1.25pm Def (S)
telegraphs, “I have sold Buyer
the iron” offer acceptance liability

1.34pm. Plf (B) accepts

the offer to sell at 40s,
cash.

1.46pm. Def’s telegraph

arrives.

What if the offeree adds to or varies the offer?

Stevenson, Jaques &Co v. McLean [1880] 5 QBD 346
1. Was the buyer’s statement a counteroffer,
or a mere inquiry?
2. Had the offer been terminated by
revocation?

1.25pm Def (S) telegraphs, “I have sold

the iron”

1.34pm. Plf (B) accepts the offer to sell

at 40s, cash.

1.46pm. Def’s telegraph arrives.

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Battle of Forms
Butler v Ex‐Cell‐O Corporation (1979)
• Order made on Buyer’s
1. All orders on Seller’s terms order form
2. Seller’s terms to prevail • Tear off slip:
over any terms in Buyer’s “We accept your
order. order on the Terms
 Price escalation and Conditions stated
thereon.”

Buyer
Seller (Plf) (Def)

“… your official order .. Is being entered in accordance with our revised

quotation of 23rd May …”
Issue: On what terms was the contract entered into? (i.e. does it
include the price escalation clause?)

Battle of Forms
Butler v Ex‐Cell‐O Corporation (1979)
Traditional approach
Last Shot Approach: “The battle is won by the person who fires the
last shot. He is the man who puts forward the latest term and
conditions; and if they are not objected to by the other party, he may
be taken to have agreed to them.”

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Battle of Forms
Butler v Ex‐Cell‐O Corporation (1979)
“By letter dated 4 June 1969 the sellers' acknowledged receipt of the
counter‐offer, and they went on in this way: 'Details of this order have been
passed to our Halifax works for attention and a formal acknowledgement of
order will follow in due course.' That is clearly a reference to the printed tear‐
off slip which was at the bottom of the buyers' counter‐offer. By letter dated 5
June 1969 the sales office manager at the sellers' Halifax factory completed
that tear‐off slip and sent it back to the buyers.
It is true, as counsel for the sellers has reminded us, that the return of that
printed slip was accompanied by a letter which had this sentence in it: 'This is
being entered in accordance with our revised quotation of 23rd May for
delivery in 10/11 months.' I agree with Lord Denning MR that, in a business
sense, that refers to the quotation as to the price and the identity of the
machine, and it does not bring into the contract the small print conditions on
the back of the quotation. Those small print conditions had disappeared from
the story. That was when the contract was made. At that date it was a fixed
price contract without a price escalation clause.”
‐Lawton LJ

Battle of Forms
Butler v Ex‐Cell‐O Corporation (1979)
Lord Denning MR
“… look at the documents passing between the parties and glean from them,
or from the conduct of the parties, whether they have reached agreement on
all material points, even though there may be differences between the forms
and conditions printed on the back of them.”
“If he offers to sell at a named price on the terms and conditions stated on the
back and the buyer orders the goods purporting to accept the offer on an order
form with his own different terms and conditions on the back, then, if the
difference is so material that it would affect the price, the buyer ought not to
be allowed to take advantage of the difference unless he draws it specifically to
the attention of the seller. .”
“The terms and conditions of both parties are to be construed together. If they
can be reconciled so as to give a harmonious result, all well and good. If
differences are irreconcilable, so that they are mutually contradictory, then the
conflicting terms may have to be scrapped and replaced by a reasonable
implication.”
Amounts to the judge creating a contract for parties

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• OKA Electronics Ltd v Manohar Chugh (t/a

Electric & Electronic Industries) [1991] HKCA
266 (following Butler)

• Au Wing Cheung v Roseric Ltd [2008] HKEC

591. District Ct: last‐shot doctrine should be
displaced if the ‘last shot’ contract differed
materially from the initial contract, such that
it would be unjust for the sender to take
advantage of the differences without telling
the receiver

Communication must reach the offeror

Entores v Miles Far East (1955) (*)
Communication by telex

Where instantaneous communication is employed, the communication is only

complete when the acceptance is received by the offeror; and the contract is made
at the place where the acceptance is received.

Affirmed in Brinkibon Ltd v Stahag‐Stahl [1983] 2 AC 34

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Exception: the postal acceptance rule

Adams v Lindsell (1818) 1 B & Ald 681
Acceptance is effective the moment the letter of
acceptance is posted.

‘Where the circumstances are such that it must have been within the
contemplation of the parties that, according to the ordinary usages
of mankind, the post might be used as a means of communicating
the acceptance of the offer, the acceptance is complete as soon as it
is posted.’ Henthorn v Fraser [1892] 2 Ch 27 at 33, Lord Herschell.

What if the posted acceptance never arrives?

Household Fire Insurance v Grant (1879)

The postal acceptance rule

Adams v Lindsell (1818) 1 B & Ald 681
Acceptance is effective the moment the letter of acceptance is posted.

Excluding the application of the postal acceptance rule

The postal acceptance rule may be displaced by terms of offer, or

where it would produce manifest inconvenience and absurdity:
Holwell Securities v Hughes (1974) (*)

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Tutorial Q.3
Shawn posts on his Facebook account a picture
of his limited edition Iron Man action figure and
says that he is selling it for $2,000. Peter writes
on a postcard, “I accept your offer to sell your
Iron Man action figure” and places it into the
postbox on 4 August. On 5 August, Yang
telephones Shawn, who agrees to sell it to Yang
for $1,800. Peter is aggrieved. Advise him.

You are
here

Legal issue 1
(IRAC-1)

Legal issue 2 What is the desired outcome?

(IRAC-2) (Where does Plaintiff want to go?)

Legal contract

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Can there be acceptance by

silence?
Felthouse v Bindley (1862)
1. Uncle offered to buy nephew’s horse, “If I hear no more
about him, I’ll consider the horse mine for £30 15s.”
2. Nephew did not reply. Instructed auctioneer to remove the
horse from the auction list.
3. Auctioneer mistakenly sold the horse to a third party.

Issue: Was there a contract between uncle and nephew?

Held: No. While the nephew may have intended in his own mind to
sell to his uncle, he had not communicated his acceptance to the
uncle.

Acceptance in ignorance of the offer

Tinn v Hoffman (1873)

Identical cross offers do not amount to a contract.

R v Clarke (1927)
Cf. Williams v Carwardine (1833)

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Acceptance in a unilateral contract

Consider Carlill v Carbolic Smokeball
What if: the Carbolic Smokeball withdraws all its
advertisement after the plaintiff had begun
using the smokeball but before she contracted
the influenza?
“While I think the true view of a unilateral contract must in general be that the
offeror is entitled to require full performance of the condition which he has
imposed and short of that he is not bound, that must be subject to one important
qualification, which stems from the fact that there must be an implied obligation
on the part of the offeror not to prevent the condition becoming satisfied, which
obligation it seems to me must arise as soon as the offeree starts to perform.
Until then the offeror can revoke the whole thing, but once the offeree has
embarked on performance it is too late for the offeror to revoke his offer.”
Daulia Ltd v Four Milbank Nominees Ltd [1978] Ch 231 at 239, per Goff J.

Acceptance in a unilateral contract

Errington v Errington (1952)

You pay the weekly

Lender instalments …. The house
will be yours when the
mortgage is paid.

Price £500
F Son + Wife

Deposit £250
Instalment 15s per wk

Whether F may withdraw the offer when the Son has started
performance (but not yet completed it)?

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Acceptance in unilateral contracts

Cf. Luxor v Cooper (1941)

Context: Claim for estate agent’s commission.
Issue: Where an estate agent has introduced a potential
purchaser who meets Vendor’s requirements, is the Vendor
obliged to complete the sale?
Held: (1) Much depends on the nature of the contractual duties
undertaken. Hence, it is a matter of interpretation of contract.
(2) Where the commission is payable on the completion of the
purchase, there is no implied term that the Vendor shall not
‘without just cause’ prevent the agent from earning commission.
Learning Point:
Whether the offeror can take action which prevents
the offeree from fulfilling the terms of the offer
(and thus earn the fee) … depends on whether such
a duty can be inferred from the context.

Beyond the offer and acceptance

framework
Clark v Dunraven, The Satanita (1897)
•Statutory stipulation of the damages
payable
•Each competitor undertook to the
organizer that he would pay all damages
caused by fouling

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Beyond the offer and acceptance

framework
Shanklin Pier v Detel Products (1951)

Shanklin Pier v Detel Products (1951)

Detel
(manufacturer)

Employer Builder

• Employer building a pier wanted paint that could withstand the elements.
• Made inquiries of manufacturer.
• Employer instructed Builder to the recommended paint.
Issue: whether there was a contract between Employer and Manufacturer?
Held: In return for Employer choosing the recommended the paint, Detel
promises that it meets Employer’s requirements.

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Summary:
A valid acceptance must:
(i) correspond with the offer,
(ii) be given in response to the offer (there
must be a nexus or causal connection
between the acceptance and the offer),
(iii) be made by an appropriate mode, and
(iv) be communicated to the offeror (this
fixes the time when the contract is
concluded, the terms are fixed, and
withdrawal is impossible).

Termination of offer
1. Withdrawal of offer – communication of
withdrawal. Dickenson v Dodds (1893)(*).
2. Rejection
3. Lapse of reasonable time. Manchester
Diocesan Council for Education v Commercial
and General Investment (1969)
4. Lapse of specified time for acceptance
5. Death of offeree

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